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Strategies & Market Trends : Investment in Russia and Eastern Europe

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To: Real Man who wrote (1081)2/8/2000 2:44:00 AM
From: CIMA   of 1301
 
Herding Pariahs: Russia's Dangerous Game

Summary

Throughout the Cold War, the Soviet Union supported a number of
weak, corrupt states - from Angola to North Korea - in order to
offset the West. When the Cold War ended, Russia no longer needed
or wanted to maintain its global confrontation with the West, and
it cut these allies loose. Now, however, after a decade of
diplomatic and economic silence between Moscow and its former
client states, Russia is reactivating some of its old
relationships. This will ultimately help rewrite the rules of
relations with the West.

Analysis

Despite Russia's social, demographic and economic decline, Russia
under acting President Vladimir Putin is managing to politically
reassert its interests throughout much of the former Soviet Union.
At the recent summit of the Commonwealth of Independent States [
stratfor.com], Putin
demonstrated his ability to lure and cajole the other CIS members
into cooperation. Putin's tough line in Chechnya
[http://www.stratfor.com/CIS/commentary/c0001190220.htm], too, has
earned him fear and grudging respect in much of the former Soviet
Union. Yet the Chechen war has all but ostracized Russia throughout
the West.

As a result, an upcoming trip by Russian Foreign Minister Igor
Ivanov to North Korea illustrates a new decision by Moscow to
change the rules of the larger diplomatic game with the West. No
longer content to dine on the scraps the West deems fit to dispense
from the table of the IMF, the Putin government is attempting to
increase Russia's leverage by re-activating Soviet-era
relationships. In doing so, Moscow is clearly attempting to alarm
Western governments.

Ivanov is set to visit North Korea Feb. 9-10, the first time in a
decade that Russia has significantly engaged the Pyongyang
government. The last major dignitary from Moscow was then-Soviet
Foreign Minister Eduard Shevardnadze in 1990. Like Shevardnadze
then, Ivanov now will discover an economically backwards, corrupt
and teetering regime that has survived by completely separating
itself from the international community. In the Russian government
press, a so-called Treaty on Friendship, Good-Neighbor Relations
and Cooperation, which will be signed, is being trumpeted as an
important event. The Putin government hopes that North Korea will
function as a geopolitical level for Russian influence in a very
dynamic - and very tense - region.

On another front, at least one prominent politician has announced
that another old relationship is being revived: the one between
Moscow and Baghdad. Vladimir Zhirinovsky, head of the ultra-
nationalist Liberal Democratic Party, announced Feb. 7 that he
reached an agreement with Iraqi President Saddam Hussein on the
stationing of Russian warships at Iraqi naval bases. It remains to
be seen whether the Russian government was even aware of
Zhirinovsky's efforts, but the goal appears the same - gaining a
potential diplomatic lever that will complicate every Western
action in the Persian Gulf.

Ivanov is also planning to visit Vietnam Feb. 13-14. Due to a large
population, mineral resources and proximity to trading routes,
Vietnam holds significant promise as a trading partner for Russia.
Politically as well, Vietnam and Russia share a significant
relationship. Vietnam serves as the coordinator of relations
between Russia and the Association of Southeast Asian Nations. This
role, the Moscow-Beijing relationship and Russian membership in the
Asia Pacific Economic Cooperation trade grouping are Russia's three
links to the Pacific Rim. Furthermore, Vietnam's recent decision to
abandon economic reforms has left it looking to old allegiances for
support.

Russia views these states as political chips in a larger game with
the United States. North Korea, Iraq and Vietnam oriented toward
Moscow would grant Russia the ability to apply pressure on three
regions vital to U.S. security.

However, Moscow's attempt to rewrite the geopolitical rules will
not come easily. Iran, despite its past friendly relations with
Russia, will react sharply against any new foreign presence in the
Persian Gulf. China will not take kindly to any Russian attempts to
gain influence either in North Korea and Vietnam.

But the prime target of Russia's change in strategy - the West -
seems oblivious to the change. Europe and the United States are
still holding out the possibility of IMF loans if Russia rectifies
its bad behavior in Chechnya. However, few in the West realize that
Russia no longer cares. After 10 years of nearly terminal decline,
Russia has ceased to play by Western rules.

The new strategy is risky. Putin is hinting at the potential of
confrontation with the West, knowing full well that its choice of
strategies may place Russia against Iran and China as well. But the
Putin government appears to believe that Russia can no longer
remain in its intolerable economic and political limbo. Instead, it
is striking out on tried-and-true methods of global engagement that
worked for the Soviet Union for a half century. Ivanov's trips to
North Korea and Vietnam are but the opening steps.

(c) 2000 WNI, Inc. stratfor.com

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